Explaining the dynamics of the NIKKEI 225 stock and stock index futures markets by using the SETAR model
AbstractTheory predicts that, if stock and stock index futures markets operate efficiently, price movements in these markets should follow a first-order vector error correction model in which the error correction term represents the basis, and in which there are no regimes. However, following Brooks and Garrett (2002), by using the self-exciting threshold autoregressive (SETAR) model, in this article, we show that there are three regimes in the dynamics of the basis of the NIKKEI 225. In addition, in the central bound, autocorrelation exceeding the first-order variety is observed. This indicates that the basis is persistent and predictable, and triggers no arbitrage in the central bound. For Japan, the basis is successfully explained by a SETAR model with two thresholds, as suggested by Brooks and Garrett. However, the adjustment pattern of the basis outside the central bound differs from that observed for the United Kingdom.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Taylor and Francis Journals in its journal Applied Financial Economics Letters.
Volume (Year): 3 (2007)
Issue (Month): 2 ()
Contact details of provider:
Web page: http://www.tandfonline.com/RAFL20
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).
If references are entirely missing, you can add them using this form.